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Tips and traps: a final check for your tax return this year

The end of the 2022 financial year is fast approaching and it’s time to collate your information to ensure you pay the right amount of tax. Given the ongoing impacts of the pandemic, it’s important for PAYG employees to be across their obligations and the COVID concessions implemented by the Australian Tax Office (ATO).

Where do I start?

The first question is whether you prepare your tax return yourself or get some help with it. Where a taxpayer lodges their tax return via a tax agent, an extension of time to lodge and pay may be available. However, this is only the case if all of your prior year tax returns have been lodged. No FY22 lodgement extension will be granted beyond the usual 31 October deadline if there are outstanding prior year tax returns as at that date.

The deferred lodgement due dates available for clients of tax agents are:

  • 31 March 2023 if the taxpayer’s last lodged tax return resulted in a tax liability of $20,000 or more; OR
  • 15 May 2023.

Not only do you gain more time utilising the services of a tax agent, but also professional expertise and guidance. Tax agents are aware of the ATO’s particular focus areas for reviews or audits, as well as ATO data matching activity, and can help you ensure that you remain compliant.

Tax filing process and important deadlines

For those who have reasonably straightforward tax affairs and choose to prepare their own tax return, what are the main points that you need to be aware of?

First, don’t be late! Ensure you lodge your FY22 tax return by 31 October 2022. Missing your tax return lodgement deadline can give rise to late lodgement penalties.

The second key item to note is the tax payment due date, which is three weeks after lodgement, i.e. 21 November 2022. Paying your tax liability late is likely to give rise to interest charges imposed by the ATO.

Most taxpayers lodge their tax return online via myTax by linking a myGov account with the ATO. It is not mandatory, but it can certainly help streamline the process as most information from your employers, banks, government agencies, health funds and other third parties is pre-filled by late July.

You can also upload your myDeductions data to pre-fill your tax return. If you are expecting a tax refund, lodging online should expedite receiving the money. The ATO usually issues tax refunds within two weeks where the tax return is lodged online. You can check the progress of your tax return by logging in to the ATO’s online services via myGov. Paper returns are processed manually, taking up to 10 weeks.

All employers are now required to report your payroll information directly to the ATO on a real-time basis and you will not receive a PAYG payment summary, but rather an ‘income statement’ which should be readily available for you to access via myTax after 14 July. Wait for your employer to mark your income statement as ‘tax ready’ before you prepare and lodge your tax return.

ATO priorities

This year, the ATO has announced four key focus areas for Tax Time 2022:

  • Record keeping
  • Work-related expenses
  • Rental property income and deductions
  • Capital gains from crypto assets, property and shares

On deductions, Assistant Commissioner Tim Loh has explained that “It’s important you rethink your claims and ensure you can satisfy the three golden rules”:

  1. You must have spent the money yourself and weren’t reimbursed.
  2. If the expense is for a mix of income producing and private use, you can only claim the portion that relates to producing income.
  3. You must have a record to prove it.

How to maximise your tax refund

In recognition of the changes to many employees’ working arrangements due to COVID-19, the ATO introduced a handy shortcut method for claiming working from home related tax deductions.

This shortcut method is available to use for the entire 2022 financial year. You can claim a tax deduction of 80 cents for each hour you work from home provided that you are working from home to carry out your ordinary employment duties and have incurred additional running expenses as a result.

Tip: It’s important to keep a record of the hours you have worked from home during this period. The ATO’s myDeductions tool is readily available at any time via myTax and can be used to pre-fill your tax return.

Trap: Noting in particular if you elect to use this shortcut method, you will be unable to claim any other expenses for working from home during that period.

Note that the ATO has not extended the availability of the shortcut method for FY23, and hence FY22 may be your last opportunity to take advantage of this method.

Of course, you may continue to use the other methods available to calculate your deduction (e.g. the fixed rate method of 52 cents per hour, or the actual cost method). For FY22, you can choose whichever of the three methods provides the most beneficial tax outcome.

If you have a rental property, claim appropriate capital works and capital allowances (depreciation) deductions where available. Be aware that the rules changed from 1 July 2017 which limits capital allowance deductions for second-hand assets acquired after 9 May 2017. Investors who purchase new plant and equipment will however continue to be able to claim depreciation expenses on these assets. Helpful information relating to rental properties can be found in the ATO’s 2022 Rental properties guide.

Tip: engage a quantity surveyor to make an assessment and prepare a depreciation report to outline amounts to be claimed in your tax return each year. The cost of having a depreciation report prepared is also tax deductible.

Ensure you have picked up all donations made during the year to deductible gift recipients. Taxpayers may make donations over the course of the year but often forget to claim them because they don't keep a record. 

COVID-19 test expenses

From 1 July 2021, a new law is in effect to allow you to claim a tax deduction for work-related COVID-19 test expenses. To claim a deduction, you must:

  • Use the test for a work-related purpose (e.g. to determine if you may attend or remain at a place of work).
  • Get a qualifying COVID-19 test, such as a PCR test through a private clinic or other tests in the Australian Register of Therapeutic Goods, including RAT kits.
  • Pay for the test yourself (i.e. your employer doesn’t give you a test or reimburse you for the cost), and
  • Keep a record to prove you incurred the cost (e.g. a receipt) and were required to take the test for work purposes (e.g. correspondence from your employer stipulating the requirement to test).

Tip: the new law also applies where the taxpayer’s positive COVID-19 test means that they will work from home instead of at their place of work.

Trap: You can only claim the work-related portion of your expense on COVID-19 tests. For example, if you buy a multipack of COVID-19 tests and use some for private purposes (such as by other family members or for leisure activities), you must only claim for the portion of the expense you use for a work-related purpose.

Cryptocurrency

The ATO is increasingly turning its focus towards cryptocurrency gains, and it can closely track cryptocurrency transactions through data from designated service providers. If your crypto is not considered a personal use asset, then any disposal will generally need to be declared for capital gains tax (CGT) purposes and you may be entitled to a CGT discount where the asset has been held for at least 12 months prior to disposal.

The ATO outlines that cryptocurrency is a personal use asset if you acquire and use it within a short period of time and directly exchange it for items you personally use or consume. In most situations, cryptocurrency is not a personal use asset and will be subject to capital gains and the longer you hold cryptocurrency, the less likely the ATO considers it a personal use asset.

Tip: Ensure you keep robust records of transaction dates and values. You can refer to the ATO’s Tax-smart tips for your cryptocurrency investment for further guidance.

Trap: A capital gains tax event will likely still arise upon transfer of cryptocurrencies, even where you have not yet converted your crypto into a fiat currency (i.e. a currency established by a country’s government regulation or law). Remember you cannot offset your crypto losses incurred on capital account against salary and wages.

Super contributions

You no longer need to ‘salary sacrifice’ super contributions in order to reap tax savings. From 1 July 2017 all individuals under 75 years are eligible to make a contribution and claim a tax deduction for personal super contributions made into an eligible super fund.

For the 2022 tax year, this includes those aged 67 to 74 years who meet the prescribed work test or satisfy the work test exemption criteria. You should check with your superfund the date by which you should make the contribution into your fund in order to ensure it can be processed by year end. It is important to note that personal superannuation contributions for which a deduction is claimed count towards your concessional contributions cap, currently $27,500 for FY22.

In order to claim a tax deduction for the contribution, taxpayers need to provide their super fund with a ‘notice of intent to claim or vary a deduction for personal super contributions’ on or before the day their 2022 tax return is lodged or 30 June 2023, whichever is earlier.

Tip: From 1 July 2019, carry-forward rules allow eligible taxpayers to make additional concessional contributions using unused concessional contribution cap amounts from previous years (without incurring excess concessional contributions tax), provided their total super balance on 30 June of the previous financial year is less than $500,000. These rules only apply to unused concessional contributions cap amounts from 1 July 2018, with unused cap amounts expiring after five years. You can view your carry-forward unused concessional contributions using ATO online services through myGov.

Private health insurance

Finally, ensure you have adequate private hospital insurance coverage with an Australian registered health fund so that you are not liable for the Medicare Levy Surcharge (MLS). Having 'extras' or 'ancillary' cover only will not be sufficient. At present, the MLS will apply where a taxpayer’s 'income for surcharge purposes' is above $90,000 (singles) or $180,000 (families). From 1 July 2019, health insurers do not have an obligation to send members a private health insurance statement. If you are lodging your return online or via a tax agent, your health fund details should be prefilled online via myGov. You may need to reach out to your health insurer to obtain a statement directly if the details are not appearing in your ATO pre-filling report or where you choose to lodge a paper tax return.

 

Mardi Heinrich is a Partner, Expatriate Tax at KPMG. This article is general information and does not consider the circumstances of any investor.

First published by KPMG NewsRoom, and reproduced with permission.

 


 

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